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I guess I’m going to be hounded out of the forum with pitchforks and flaming torches for confiding this dirty little secret. Apparently, confession is a catalyst for redemption, so here’s the truth: I never have and probably never will produce a statement of net worth.
I really don’t see the point. My two homes and cars aren’t for sale, and their personal contents are just that—personal and not for sale. Since I don’t view any of these possessions as liquid, they hold no practical monetary value for me. I only care about knowing the position and value of my actual liquidity: cash, stocks, and bonds.
My financial foundation is built on zero debt. Given this principle, I can’t chip a brick from my home’s wall or remove a wing mirror from my car to use either as payment at the grocery store. These items are irrelevant to my financial planning, as are the assets they belong to.
To me, the only reason to include illiquid assets in financial calculations is if you plan on leveraging those assets to take on debt—which I don’t. My illiquid assets, along with remaining liquid assets, will simply be passed on to my children and grandchildren to do with as they choose.
It won’t be a difficult task for my heirs to sell any illiquid assets and valuable personal possessions to distribute the money as per the will. They’ll just have to accept any impediment as a fee to access my illiquid assets. However, it won’t be difficult because a detailed account of my liquid assets will be available, and all deeds, titles, and policies will be deposited with the will.
My wife Suzie is fully on board with this philosophy and is fully aware of all our financial positions should I shuffle off this mortal coil first. I think this position is logical within our own narrow frame of reference. That is, zero debt and a strong focus on liquidity for day-to-day living and planning. The net worth of our illiquid assets is “irrelevant” because we have no intention of using it for personal consumption.
There’s also the matter that I can’t be bothered going through all the faffing about to produce the document, but I’m not going to mention that 😉
You sound like you read the hammering I took awhile back on HD on the same subject of what is net worth and usable net worth.
I’m with you, Mark. For planning purposes, net worth is what is liquid, not my real estate or car or my Apple Watch
I did indeed…secretly, I’m always rooting for your point of view🙊
Mark,
You shouldn’t be hounded for your approach.
You be You!
”My financial foundation is built on zero debt.”
My wife and I agree with you 100%!
No mortgage. No car loan.
I suppose the stuff we put on our credit card IS a form of debt. But we are ‘full amount payers’ each month.
We intend on leaving everything to our kids.
Zzzzzzzzzzz . . .
Wake up MF!
My Excel financial report calculates my net worth automatically, based on various assets and debts, but the number is just a figure on a page. I’ve never been asked “what’s your net worth?”, and if I was, my likely response would be “none of your business”. I know what it is, I just don’t use it for anything.
I seem to remember needing it, or something similar, when I arranged a HELOC. Also, my CCRC did a financial check before accepting my application and again before I moved in.
Now why did that get downvoted? It’s just a statement of fact.
Maybe fat fingers and presbyopia. Hit the wrong arrow?
I have a (free) dashboard on Empower (formerly Personal Capital) that tracks our retirement accounts, cash accounts, mortgage balance, and the Zillow “Zestimate” of our home’s value (for whatever that’s worth, which is dubious). That’s enough. I took our main checking/savings and credit card accounts off of it because it’s always changing and was never up to date and it just muddied the waters.
The net worth calculation has always been unhelpful to me because of our pensions. We get three between us, and when my husband leaves his current position, we’ll get a fourth. All get COLAs and all have 100% survivor benefits. They obviously won’t be part of our estate, but they also obviously are an enormous part of our retirement planning, along with Social Security when we start drawing it. If you do those online retirement calculators, they will say we haven’t saved enough. But since we won’t be drawing from our portfolio to pay our bills, we have more than enough. So our pensions aren’t part of our “net worth,” but they’re a huge part of the big picture.
I never knew how to value pensions or Social Security before HumbleDollar came along. Dividing those annual benefits by .04 and using that number in your NW calculation will give you much a better result.
This issue has come up before…. I never included my house, its contents or my car, and now I don’t have a house and the car isn’t worth much. I suppose the future health care my CCRC will provide if necessary has a monetary value (I’m sure it’s a debit somewhere on their books), maybe someone has an idea of how I would calculate it. I’ve only ever been interested in liquid net worth.
At his time in my life, tracking net worth and managing investments is more like a hobby, or as B Carr writes, amusement. NW could become important in the future if bad things such as long term care, CCRC planning, or cuts to Social Security come about.
Including the house in NW is only one entry in the Full View feature at my Fidelity page. I don’t bother including cars, coins, watches, or any other junk in the calculation.
And thanks for expanding my vocabulary, I love “fluffing about”.
Doing my bit for inter-country understanding, and I’m sure it will sound much better with an American twang. I can just imagine the look of puzzlement on your friend’s face when you drop that phrase into conversation! Lol.
Damn auto correct….. faffing about!
I was to polite to point that out
“too”, LOL. If you recall I’m also the guy who called Harp, Harps.
😂
I agree with you, Mark. I can’t remember the last time I calculated our net worth. I focus on the liquid assets. The house is actually a drain on my money due to the maintenance, and I’ll have to replace the cars as I use up their value. But I know from past experience that a number of other readers don’t agree with us.
they’re the ones with the pitch forks and flaming torches!
I was the principal in a business among other things. I also had an interest in commercial property. While many think of preparing for the future as saving via a retirement account, I had multiple choices of where to place capital. My retirement accounts (Roth, IRA, SEP, 401k) were only a part of my wealth. My spouse also has assets.
Net worth analysis provided the true picture and as a business owner the banks were interested in this from time to time. As hard assets were sold (property and company stock) the proceeds have been transferred to a variety of accounts.
I don’t have a plan per se to leave significant assets to the children; they are financially independent and don’t require any financial assistance on my part. However, our wills do include gifting to about 20 individuals and organizations. The NW statements and lists indicate the sources of these funds.
My finances are well organized, and my NW statement is automatically generated. It includes some valuable art.
I would agree that if assets are held in a bank account, a retirement account and a home, then calculating net worth is obviously not helpful.
This is a good reply and perspective, Norman, thanks. People here on HD have various situations. Spouse and I don’t have a lot of the assets that you and others have so net worth is not as complicated and easy for us to do. Chris
It seems that I had to provide a net worth statement to a lender once many years ago. Younger folks should keep an eye on their NW to make sure it is growing as they go along.
My own NW now is tracked as a matter of amusement.
Mark,
As usual another thought provoking post.
As to: “To me, the only reason to include illiquid assets in financial calculations is if you plan on leveraging those assets to take on debt—which I don’t.”
When I calculate our net worth I don’t include anything but our portfolio, house, and cars as I can’t bother to try to find the intrinsic value of small items. I do however separate out the illiquid assets to determine our portfolio balance (I still have accounts with multiple mutual fund companies from an inheritance). This is important because as I have written we are living off our portfolio until we claim Social Security at 70. I need to be assured our portfolio is not significantly decreasing (the good news is it’s not, in fact it reached multiple all time highs this week).
Regarding the quote above I do have one scenario where I think it is valuable to include the house and cars (their trade in value currently is near 100K). That is when you are in your later years considering eventually moving into a CCRC. With the fact that the cost of entry, and the monthly fee are so high and you no longer will be living in the house and there is a reasonable chance you would be downsizing to one car knowing these assets’ value are important.
That’s an excellent point about the CCRC, David. Your response yesterday to my question about the new TV and spreadsheets was the inspiration for this article—so it’s all your fault lol
Other than not knowing what “faffing about” entails, I agree with Mr. Crothers’ approach and reasoning.
We’re divided by a common language: “Faffing about” is a British, informal phrase that means to waste time doing things that are not important or useful.
Thanks for the word of the day.
it had bumfuzzled me
I intend to make “faffing about” a part of my every day vocabulary.